Unsecured loan

Livingthedream01

Hi all
Hope this is the right place for this as its my first post. We currently own a house and when we took out the mortgage we were silly and did it on over 100% (about 9 years ago) and that meant we took out a unsecured loan at the same time. We have been overpaying that and now down to only owing about 9500. I've just fell in love with a new build house that won't be ready until next May. So I'm in a quandry now, do I continue to pay off our unsecured loan or put the money away for a deposit on the house I want. We don't want to sell our house but to rent it when we move out and the mortgage company have already said we don't have to pay up the loan to rent it on the short term basis.

We don't have any savings currently as its all been going on the loan. So what do you think, pay the loan or save for a deposit?

thanks!

gb12345

Livingthedream01 wrote: »

So what do you think, pay the loan or save for a deposit?

Are you really asking whether you should default on a loan so that in a few months time you have a deposit for a new house? :eek:

Has it crossed your mind that when you stop paying the loan that fact will be recored on your credit history, which will affect your ability to get the mortgage for the new house.

Sorry, but I really can't see anyone on here giving you the answer that you want to hear.

Livingthedream01

No sorry I wasn't clear. Our current min payment on the loan is about £70 which I pay every month with no problems at all and would continue to do so. But I've been paying off an additional £1500 on top of this. So my question was do I continue to pay this or put the 1500 towards a deposit instead?

Thanks

gb12345

You are very unlikely to find a lender now who will offer you a 100% loan, so you will need a deposit if you are going to buy the new house.

Will you be able to save up enough between now and May (are we talking May '13 or May '14?) to cover 5% or 10% of the purchase price of the new house?

The new lender will take into account your outstanding credit when they consider the new mortgage, so this means that anything owing on the unsecured loan will need to be considered.

There is also the other problem of your current house and renting it out. Will rent cover the mortgage, have you considered how long you will rent it for and what will happen if you can't find a tenant? You might end up having to pay for the old mortgage, the loan and the new mortgage in the worst scenario - could you afford that for 3 or 4 months?

Livingthedream01

Its May 2014, so if I don't pay off the loan using extra payments I'll have an extra 10K, looking at it I can definitely save the 5% but if I don't pay the loan I'll effectively have enough to cover stamp duty too....

Caz3121

Livingthedream01 wrote: »

I've just fell in love with a new build house that won't be ready until next May.

Livingthedream01 wrote: »

Its May 2014, so if I don't pay off the loan using extra payments I'll have an extra 10K, looking at it I can definitely save the 5% but if I don't pay the loan I'll effectively have enough to cover stamp duty too....

have you actually found a lender that will do 95% on a new build? many of them require a much lower LTV

Foxy-Stoat_3

If your over paying a loan £1500 a month, it will take you 6 months to almost clear the debt. Well done for over paying it by that much tho!

I would do that and save up for the rest of the time until the houses are finished, then see if you can sell your house, raise an additional deposit and buy the new one, assuming your mortgage lender agrees.

Have you had your property valued recently?

Did you take out a repayment or interest only 100%+ mortgage 9 years ago?

This is why people get into too much debt.....100%+ mortgage AND a loan thats now 9 years to go with a debt of £9,500 now, house prices go down.....now in negative equity AND want to buy a new house which will more than likely have a premium on the purchase price, plus selling fees of your current house, stamp duty and buying fees.

Tixy

What is the reason for wanting to keep existing house and let it out rather than sell up?

Assuming you don't carry on overpaying the loan and instead start saving. By May 2012 - what will you owe on your existing mortgage? what will you owe on the secured loan? what is the value of your current property now?

It sounds like your mortgage lender has given you consent to let on a short term basis only - how long were you thinking of renting out the current property. If its longer term then they will probably require you to switch to a buy to let mortgage - when obviously both the LTV and the rent cover will become relevant.

Livingthedream01

we thought about keeping the house we are in as an investment. We will only have 14 years left on the mortgage come next May, and will owe approx 107K and if we don't touch the loan with additional payments about £8k
Our house is probably worth about 120K

I think we planned to only let it short term to see how we get on and then if we want to do it longer then convert the mortgage.

Its all so confusing!

Foxy-Stoat_3

Depends if you want to become a Landlord or not, its not all its cracked up to be and often quite stressful, assuming you have always have tenants in there and that they don't wreak your home and pay you 100% of the time, other wise it will be a financial burden!